How do defense costs interact with policy limits in CGL?

• A. Defense costs are paid from the insured's pocket and never from policy limits.
• B. Defense costs do not affect any limits of liability.
• C. Defense costs can increase the limits.
• D. Defense costs may reduce per-occurrence or aggregate limits over time.

Answer: (D)

Defense costs are part of the policy’s coverage and are paid from the same money that pays for damages and settlements. When the insurer covers defense expenses—attorneys, experts, court costs—that money reduces the amount left available under the policy limits. In a CGL with both a per-occurrence limit and an aggregate limit, those defense payments draw down those limits as they’re incurred. So, for a single claim, defense costs count toward the per-occurrence limit, and for multiple claims in the same policy period, they also reduce the aggregate limit. This means defense costs may deplete the available coverage over time. They are not money taken from the insured or outside the limits, and they don’t increase the limits, though some nonstandard forms or endorsements could treat defense costs differently.